Market Share Competition in the Japanese Gasoline Market: A Two-Stage Game Approach

<title>Abstract</title> <p>This study is a comprehensive analysis of the Japanese gasoline market, which investigates changes in market structure following deregulation using both theoretical and empirical approaches. It examines competitive behavior in the Japanese gasoline market through a two-stage framework. In the first stage, refiners behave as Cournot oligopolists and determine the number of gas stations in order to maximize profits. In the second stage, retailers compete by setting gasoline prices under Bertrand competition. The model suggests that retail gasoline prices are influenced by both crude oil prices and the degree of market concentration, reflecting the interaction between upstream refiners and downstream retailers. To evaluate these theoretical implications, this study employs panel data from all 47 prefectures in Japan for the period from 1999–2022 after market deregulation. The empirical analysis demonstrates that fluctuations in retail gasoline prices are strongly associated with changes in crude oil prices and that higher market concentration tends to raise retail prices. The results support the theoretical predictions and suggest that market structure plays a significant role in the formation of gasoline prices in Japan.</p>